This FTSE 100 dividend stock looks cheap. Time to pile in?

Shares in mining giant Glencore plc (LON:GLEN) rose on its full-year results. Is the recovery on?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Shares in FTSE 100 constituent Glencore (LSE: GLEN) rose in early trading this morning. That bought some respite for investors who have seen the value of the company fall by 25% over the last year due to a number of issues including a money-laundering probe by the US Department of Justice and added costs as a result of US sanctions on Russia.

Could this be the start of a sustained recovery? Let’s take a closer look at today’s full-year numbers first.

Fall in profits

Initial impressions aren’t great, with the firm announcing a 41% drop in net income to $3.4bn due to “non-cash impairments” at Mutanda — its large-scale copper and cobalt operation — and Mopani.

In contrast to peer BHP, which yesterday announced a reduction in net debt, Glencore’s debt burden also increased by 44% over the period to $14.7bn. That’s still within its desired range of between $10bn-16bn, but nevertheless higher than some analysts were expecting.

There were, however, a few positives. Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) increased 8% to $15.8bn and net income before significant items rose 5% to $5.8bn. 

Commenting on today’s numbers, CEO Ivan Glasenberg stated that, despite a “challenging operating environment,” Glencore’s portfolio of assets had “continued to deliver overall competitive all-in unit costs” which, in turn, allowed it “to capitalise on healthy average commodity prices and generate attractive margins.”

Looking ahead, Glencore expects production in all commodities to be higher in 2019 than in the previous year. The company also stated that it would continue to invest in the low-carbon economy.

Buyer beware

Like rival BHP Group, Glencore might appeal to Foolish investors wanting exposure to important metals without the risk associated with small-cap explorers and producers. It produces and markets more than 90 commodities, has offices in 50 countries, and owns roughly 150 assets around the world.

In addition to being a truly diversified business, last year’s rout means the shares look fairly cheap. Available for a little under 10 times forecast 2019 earnings before markets opened this morning, Glencore’s stock is less expensive than the aforementioned BHP, Rio Tinto and Anglo American.

Yielding 5%, there are worse places for income hunters to be investing their cash. Today’s recommended 20¢/share distribution is in line with the prior year and dividends are expected to be covered twice by expected profits in 2019. That’s a lot more comforting when compared to the state of affairs at other FTSE 100 income favorites.

News that the company has decided to initiate a new $2bn buyback programme that will run to the end of the year could also help improve sentiment. Interestingly, the firm will “look to top this up” so long as market conditions allow, supported by “a targeted $1bn of non-core asset disposals.” 

All this, however, doesn’t necessarily make Glencore a great investment at the current time. Like all companies in the resources sector, the £42bn-cap’s fortunes are also dependent to an extent on things it can’t control. 

With fears that global growth is slowing, there’s no guarantee the stock won’t continue to slide in value going forward. As such, anyone contemplating getting involved should be prepared to hold for the long term.

While I remain bullish on Glencore’s prospects over the next decade or so (thanks to the electric vehicle ‘revolution’), those with shorter time horizons may wish to consider less cyclical stocks for their portfolio.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

4,123 shares of this UK dividend stock could get me £206 a month in passive income

Despite cutting its dividend significantly over the past five years, I think this FTSE 100 stock could be a good…

Read more »

Investing Articles

3 champion investments to beat the stock market in 2025

Looking for alpha? Dr James Fox details three investments that look destined to outperform the stock market in 2025 and…

Read more »

Investing Articles

2025 stock market recovery: a once-in-a-decade chance to get rich?

Zaven Boyrazian explains how he'd use the ongoing stock market recovery to his advantage, creating long-term wealth.

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

£20,000 in an ISA? Here’s how I’d aim to make £1,250 a month in passive income

Our writer thinks one rare FTSE 100 stock could help drive an ISA portfolio higher, resulting in a sizeable passive…

Read more »

Black father holding daughter in a field of cows
Investing Articles

£25k of savings? Consider aiming for a £1k+ monthly passive income via this strategy

With a long-term mindset, investors could target a four-figure monthly passive income by investing £25k in low-volatility blue-chip stocks.

Read more »

Investing Articles

The Rolls-Royce share price hit new highs in November. What next?

November has been another record-breaking month for the Rolls-Royce share price. And the outlook for 2025 still looks bright.

Read more »

Investing Articles

Here’s the growth forecast for Sage Group shares to 2026!

Sage Group shares have rocketed following the tech firm's stunning third-quarter update. Is now the time to consider buying in?

Read more »

Investing Articles

10%+ dividend growth! 2 FTSE 250 shares tipped to turbocharge dividends

These FTSE 250 income shares look in great shape to grow their dividends by double-digit percentages, says our writer Royston…

Read more »